Normative interpretation excluded by the factual findings

Case information
October 2, 2013
4A_305/2013
Interest to foreign readers: 
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Interesting
Topics: 
Jurisdiction of the Arbitral Tribunal
Arbitration clause
Original language: 
German

Parties

Respondent: 
Introductory note: 

The case involved a 1999 Distribution Agreement between a German company (and presumably its subsidiary in Egypt) on the one hand and an Egyptian company on the other hand.

The Distribution Agreement contained an arbitration clause providing for ICC arbitration in Zürich. However, the Distribution Agreement was substituted with two new agreements in 2003 and 2006, which did not contain the arbitration clause and a sister company belonging to the same Egyptian group also undertook to withdraw certain cases pending in the Egyptian courts against payment of an amount agreed in a settlement agreement.

The amount was not paid and litigation continued in Egypt, whereupon the German company and its Egyptian subsidiary started arbitration in Zürich with a view to obtaining a finding that the Egyptian company had no claim under the 1999 Distribution Agreement and its termination.

The Egyptian group argued that the Arbitral Tribunal had no jurisdiction and on May 6. 2013, the Arbitral Tribunal (chairman Jacques Werner with arbitrators Thomas Kloetzel and Naglaa Nassar) issued an award denying jurisdiction.

And appeal was made to the Federal Tribunal and the following is interesting in the opinion:

(i)         The Federal Tribunal is bound by the factual findings of the Arbitral Tribunal and cannot rectify or supplement them unless a specific grievance -such as a violation of due process- is argued against such factual findings or when, for similar reasons, new evidence is taken into consideration. In other words, the approach of the Court is very restrictive in this respect but the case law of the Federal Tribunal is very consistent and it will remain almost impossible to challenge a factual finding of the Arbitral Tribunal in the Swiss Supreme Court (See section 2.3 of the opinion in this respect).

(ii)        When an arbitral tribunal reaches the conclusion that the parties agreed to rescind an arbitration agreement, this is a factual finding reached pursuant to an assessment of the evidence and it binds the Federal Tribunal. There is no normative interpretation of an arbitration clause in such factual findings but merely an assessment of the evidence, which cannot be reviewed by the Federal Tribunal (See sections 3 of the opinion in this respect).

The Federal Tribunal reached the conclusion that the matter was not capable of appeal because there was no admissible criticism of the factual findings of the Arbitral Tribunal but merely an argument against normative interpretation of the arbitration clause, which had not taken place. The Court reached its conclusion without even asking for the views of the Respondent and this is somewhat unsatisfactory.

As the issue of the proper interpretation of an arbitration agreement is unlikely to go away and will necessarily be raised again in future appeals, the matter may have deserved to be reviewed more in depth. The conclusion reached by the Court is probably right but it is not very satisfactory to see it disposed of in such a summary way.

Translation: 

4A_305/20131

 

 

Judgment of October 2, 2013

 

First Civil Law Court

 

 

Federal Judge Klett (Mrs.), Presiding

Federal Judge Kolly

Federal Judge Niquille (Mrs.)

Clerk of the Court: Hurni

 

1. X.________ AG, and

2. X.________ Technologies S.A.E.

Both represented by Dr. Nathalie Voser, Dr. Manuel Liatowitsch and Mrs. Sonja Stark-Traber,

Appellants

 

v.

 

Y.________,

Represented by Dr. Khaled El-Shalakany

Respondent

 

 

Facts:

 

A.

A.a. X.________AG (Appellant 1) is a capital company under German law seated in R.________.

 

X.________ Technologies S.A.E. (Appellant 2) is a capital company under the law of the Arab Republic of Egypt seated in Egypt.

 

Y.________ (Respondent) is a company under the law of the Arab Republic of Egypt seated in Egypt. The Respondent and Z.________ belong to the Egyptian group Q.________.

 

A.b. On February 18, 1999, the Appellants entered into an exclusive distribution contract (“The Distribution Agreement 1999”) on the basis of which the Respondent was the Appellant 1’s distributor in Egypt between 1999 and 2003.

 

The Distribution Agreement 1999 contains an arbitration clause at Article 18.

 

On November 25, 2003, the parties terminated the Distribution Agreement 1999 by way of a termination agreement. Eventually, the Appellants entered into a new Distribution Agreement 2003 with C.________, which superseded the Distribution Agreement 1999 with the Respondent.

 

In 2004, the Appellants and Z.________ entered into a Side Letter 2004 in which C.________ undertook to take over the entire responsibility for “all commitments, obligations and litigations out of the business of Y.________”2. In 2006, the Appellants and Z.________ entered into a new Distribution Agreement 2006 that was not exclusive as opposed to the previous distribution contracts. Parallel to this, a Settlement Agreement 2006 was concluded, in which Z.________ undertook to withdraw various claims pending against the Appellants in the Egyptian courts against payment of a certain amount. However the Appellants did not make the corresponding payment.

 

A.c. Subsequently, the Respondent filed various cases in the Egyptian courts in which it made claims against the Appellants on the basis of the Distribution Agreement 1999. The Appellants invoked the arbitration clause in these proceedings.

 

B.

In order to defend against the Respondent’s repeated claims in Egypt under the Distribution Agreement 1999, the Appellants started arbitration proceedings in the ICC on January 13, 2011, seeking a finding that the Respondent had no claims in connection with the Distribution Agreement 1999 and/or in connection with its termination.

 

The Respondent disputed the jurisdiction of the arbitral tribunal.

 

In an award of May 6, 2013, the arbitral tribunal denied jurisdiction to decide the arbitral claim brought against the Respondent by the Appellants.

 

C.

In a Civil law appeal, the Appellants made the following submissions to the Federal Tribunal:

 

“1. The arbitral award of May 6, 2013 in the International Chamber of Commerce arbitration n. 17680/FM/MHM/EMT must be annulled with a finding that the arbitral tribunal has jurisdiction to decide the Appellants’ claim, with the exception of submissions n. 2, 3 and 4 of the Appellants, according to the Terms of reference.

2. The case should be sent back to the arbitral tribunal with the exception of submissions n. 2, 3 and 4 of the Appellants, according to the Terms of reference, for a new, substantive adjudication of the arbitration claim.

3. Alternatively, the proceedings should be sent back to the arbitral tribunal for a new decision on jurisdiction.

4. The Respondent should pay the costs and compensate the Appellants.”

 

No exchange of brief was ordered.

 

Reasons:

 

1.

According to Art. 54 (1) BGG3, the judgment of the Federal Tribunal is issued in an official language, as a rule in the language of the decision under appeal. Should this be in another language, the Federal Tribunal uses the official language4 chosen by the parties. The decision under appeal is in English. As this is not an official language and the Appellants used German in the Federal Tribunal, the judgment of the Federal Tribunal will be issued in German.

 

2.

In the field of international arbitration, a Civil law appeal is allowed under the requirements of Art. 190-192 PILA5 (SR 291) (Art. 77 (1) (a) BGG).

 

2.1. The seat of the arbitral tribunal is in Zürich in this case. Both parties had their seat outside Switzerland at the relevant time. As the parties did not exclude in writing the provisions of Chapter 12 PILA, they are applicable (Art. 176 (1) and (2) PILA).

 

2.2. Only the grievances limitively listed in Art. 190 (2) PILA are admissible (BGG 134 III 1866 at 5 P. 187; 128 III 50 at 1a p. 53; 127 III 279 at 1a p. 282). According to Art. 77 (3 BGG) the Federal Tribunal reviews only the grievances raised and reasoned in the appeal brief; This corresponds to the duty to submit reasons in Art. 106 (2 BGG) for the violation of constitutional rights and of cantonal and intercantonal law (BGE 134 III 1867 at 5 p. 187 with reference). Criticism of an appellate nature is not allowed (BGE 134 III 5658 at 3.1 p. 567; 119 II 380 at 3b p. 382).

 

2.3. The Federal Tribunal bases its judgment on the facts found by the arbitral tribunal (Art. 105 (1) BGG). This Court can neither rectify nor supplement the factual findings of the arbitral tribunal, even when they are blatantly inaccurate or based on a violation of the law within the meaning of Art. 95 BGG (see Art. 77 (2) BGG ruling out the application of Art. 97 BGG and of Art. 105 (2) BGG). However, the Federal Tribunal can review the factual findings of the award under appeal when some admissible grievances are raised against such factual findings within the meaning of Art. 190 (2) PILA or when some new evidence is exceptionally taken into consideration (BGE 138 III 29 at 2.2.1 p. 349; 134 III 565 at 3.1 p. 56710; 133 III 139 at 5 p. 141; each with references). Whoever wishes to claim an exception to the rule that the Federal Tribunal is bound by the factual findings of the arbitral tribunal and seeks to have the factual findings corrected or supplemented on this basis must show with reference to the record that the corresponding factual allegations were made in the arbitral proceedings in accordance with the procedural rules (BGE 115 II 484 at 2a p. 486; 111 II 471 at 1c p. 473; each with references).

 

3.

The Appellants argue on the basis of Art. 190 (2) b PILA that the arbitral tribunal wrongly denied jurisdiction. It would have reached the conclusion that the Parties had fully terminated the Distribution Agreement 1999 - including the arbitration clause- on the basis of a normative interpretation of two contractual provisions agreed upon between the Appellants and Z.________ as a third party in the Side Letter 2004, respectively in the Settlement Agreement 2006. This construction of a normative consent by the arbitral tribunal would be untenable and violates the principle of autonomy of the arbitration clause. The statements and actions of the parties would rather prove that the Parties intended that the arbitration clause should remain in force, even after the termination of the Distribution Agreement 1999.

 

3.1. The Federal Tribunal reviews jurisdictional issues according to Art. 190 (2) b PILA freely from a legal point of view, including the substantive preliminary issues on which the determination of jurisdiction depends. However, even in the framework of a jurisdictional appeal, it reviews the factual findings of the arbitral award under review only when some admissible grievances within the meaning of Art. 190 (2) PILA are raised against such factual findings or when new evidence is exceptionally taken into account (BGE 138 III 29 at 2.2.1 p. 3411; 134 III 565 at 3.1 p. 56712; 133 III 139 at 5 p. 141).

3.2.

3.2.1. An arbitration clause is an agreement by which two or more determined or determinable parties agree to bind themselves to submit one or several existing or future disputes to an arbitral tribunal by excluding the original jurisdiction of the state, according to a legal order determined directly or by reference (BGE 138 III 29 at 2.2.3 p. 3513 with references).

 

When an arbitration clause has been entered into, it can be rescinded at any time, i.e. in particular, during the arbitral proceedings, by an informal mutual agreement (POUDRET/BESSON, Comparative law of international arbitration, 2nd edition, 2007, n. 379; BERGER/KELLERHALS, International and Domestic Arbitration in Switzerland, 2nd edition, 2010, n. 556; Pierre-Yves Tschanz, in: Commentaire romand, 2011, n. 181 to Art. 178 PILA; Kaufmann-Kohler/Rigozzi, Arbitrage international, 2nd edition, 2010, n. 273). In such a case, the jurisdiction of the arbitral tribunal lapses.

 

3.2.2. The interpretation of an arbitration clause follows the principles applicable to the interpretation of private declarations of intent. Principally, it is the concurrent factual intent of the parties that is decisive. This subjective interpretation of the contract relies on the assessment of the evidence (BGE 132 III 626 at 3.1 p. 632 with reference).

 

If the first instance finds a contractual content supported by the actual concurrent intent of the parties, this is a factual finding which is basically binding for the Federal Tribunal (Art. 105 (1) BGG).

 

It is only when no concurring factual intent can be determined that the arbitration agreement must be interpreted objectively, i.e. by determining the presumable intent of the parties as it could and should be understood by the recipient of the statement in good faith, according to the overall circumstance (BGE 138 III 29 at 2.2.314; 130 III 66 at 3.2 p. 71). The time of the conclusion of the contract is decisive in this respect, as the subsequent behavior of the parties is of no significance to interpretation according to the principle of reliance (BGE 129 III 675 at 2.3 p. 680 with reference).

 

3.3. According to the arbitral tribunal, the evidence of the agreements concluded after the termination of the Distribution Agreement 1999 shows that the Parties wanted to terminate the Distribution Agreement 1999 completely, i.e. including the arbitration clause. The arbitral tribunal points out in this respect that both the Side Letter 2004 and the Settlement Agreement 2006 contain a passage according to which all agreements between the Respondent and the contractual parties would remain in force except the Distribution Agreement 1999 (“all previous agreements, except for the Distribution Agreement dated February 18, 1999, between Y.________ and the Parties and/or End-users of Contractual Products in Egypt remain in force and will be adhered to by the Distributor without limitations15”). The statement repeated twice that the Distribution Agreement 1999 was terminated and the abandonment of any reservation in favor of the continued validity of the arbitration clause prove according to the arbitral tribunal a joint intent of the Appellants and the Respondent as well as their affiliated company Z.________ to terminate the Distribution Agreement 1999 including the arbitration clause.

 

3.4. Contrary to the views of the Appellants, these reasons of the arbitral tribunal do not constitute normative but indeed subjective interpretation of the contract. Based on the subsequent behavior of the parties, the arbitral tribunal assessed the evidence and reached the conclusion that there was a concurrent factual intent of the parties at the time the termination agreement was concluded. This appears from the clear wording of the reasons according to which the subsequent behavior of the parties “evidenced16” “joint intent17” and the fact that the subsequent behavior of the parties is not relevant to an interpretation according to the principle of reliance. The conclusion of the arbitral tribunal that the arbitration agreement contained in the Distribution Agreement 1999 was rescinded by factual consent is a factual finding which binds the Federal Tribunal (Art. 105 (1) BGG).

 

The Appellants raise no admissible grievances in this respect and merely argue that the normative interpretation of the Termination agreement - which did not take place here - would be inaccurate; in view of the factual findings of the arbitral tribunal, the corresponding arguments of the Appellants appear as mere appellate criticism of the assessment of the evidence by the arbitral tribunal, which is not admissible in an appeal against an arbitral award according to Art. 190 (2) PILA. This also applies to the argument that, according to the Appellants, the principle of autonomy of the arbitration agreement would have been disregarded. The argument is not admissible.

 

4.

Furthermore the Appellants argue that their right to be heard would have been violated (Art. 190 (2) d PILA) due to a surprising application of the law because the arbitral tribunal would have given a “new interpretation” to the principle of autonomy of the arbitration clause and would have constructed a “normative consent” without hearing the Appellants in this respect.

 

This argument too relies on the inaccurate assumption that the arbitral tribunal would have assumed a termination of the arbitration agreement by normative consent. The arbitral tribunal did not give a new interpretation to the principle of the autonomy of the arbitration clause or construct normative consent but rather assessed the evidence and reached the conclusion that there was concurrent factual intent to rescind the arbitration agreement. This is no surprising application of the law. To the extent that the Appellants may wish to claim “surprising assessment of the evidence” by analogy, they disregard the principles developed by the Federal Tribunal, according to which there is no application by analogy to the assessment of the evidence of the concept of application of the law by surprise (Judgment 4A_214/2013 of August 5, 2013, at 4.1, 4.3.118; 4A_538/2012 of January 17, 2013 at 5.119). The arguments of the Appellants, in this respect as well, constitute unauthorized criticism of the assessment of the evidence by the arbitral tribunal in the framework of an appeal against an arbitral award according to Art. 190 (2) PILA, which is not admissible.

 

5.

The matter is not capable of appeal.

 

In such an outcome of the proceedings, the Appellants are jointly liable for the costs (Art. 66 (1) and (5) BGG). The Respondent underwent no costs as a consequence of the federal proceedings and therefore is not to be awarded costs.

 

 

 

Therefore the Federal Tribunal Pronounces:

 

 

1.

The matter is not capable of appeal.

 

2.

The judicial costs set at CHF 20’000.-- shall be borne jointly by the Appellants and in equal shares between them.

 

3.

This judgment shall be notified in writing to the parties and to the ICC arbitral tribunal in Zürich.

 

 

 

Lausanne, October 2, 2013

 

 

 

In the name of the First Civil Law Court of the Swiss Federal Tribunal:

 

 

The Presiding Judge:                                        The Clerk:

 

Klett (Mrs.)                                                       Hurni